Date: 05/06/12 Duration: 00:21:30

In this podcast CIPD’s John McGurk, Hayley Wojcik from Groupon, Carole Teacher from Mott MacDonald engineering and Callum Petrie from Phillips Electronics discuss the importance of innovation to the success of the business and what practical contribution HR should make.

Philippa Lamb : In business, innovation is the catalyst to growth. Economist Joseph Schumpeter, one of the fathers of the study of innovation, said that industries must incessantly revolutionise from within with better or more effective processes and products. Of course organisations have always had to evolve and improve, you don’t last long and certainly not in economic times like these, if you don’t, but innovation is much misunderstood, so what can HR do to grow and sustain a culture that genuinely encourages fresh thinking?

Hailey Wojcik from HR, Groupon UK, Carole Teacher from Mott MacDonald and Callum Petrie from Phillips Electronics, all have the big ideas and the track records to show how innovation can help organisations to become market leaders.

First though let’s turn to John McGurk, the CIPD’s own learning and development adviser who believes that innovation is key for both mature and emerging economies.

John McGurk: Innovation is becoming critical on a global basis now for mature economies like Britain and most of those in Europe. It’s also a challenge for emerging economies who are coming to a stage where their labour costs are rising and they’re having to find ways of moving up the value chain as we say, you know, producing more complex products for different tastes and markets and it’s about everything from products to processes to the way organisations are structured. It covers a huge range of issues.

PL: Knowing what innovation actually means is a good first step. Yes, it’s having a culture of creativity to dream up new products and new practices but that's not all.

JM: It’s not just about beanbags, it’s not just about people, you know, incredibly innovative designers and engineers, people like James Dyson, for example. It’s about everybody in the organisation contributing their ideas to the future success of the organisation and most employees have got an idea about how to do something better than their managers do. Most employees keep it to themselves in most organisations because they don’t feel as if it’s invited and it’s about tapping that employee potential and that's where I think HR’s got a critical role to play.

PL: Getting every employee at every level to think about their role and the business at large in an innovative way is the holy grail of innovation. Mott MacDonald is an employee owned management engineering consultancy serving the public and the private sectors all over the world. Carole Teacher is group L & D Manager.

Carole Teacher: We have an internal award for innovation. One of the recent ones that really impressed me is something called a Smart Tunnel, which is in Kuala Lumpur and this is a tunnel that's got two car decks in it. Kuala Lumpur suffers from incredible flooding, really, really bad, and the flooding used to split the city into two and they couldn’t get across it. So this smart tunnel was built so that cars can normally go across it in two levels, two decks, but when it’s flooding this acts as a storm drain as well. So they cut the bottom one off and then that fills up with water and if it gets really, really bad the top one fills up with water as well but they tend to just operate with the bottom one being filled up with water and one of the criteria was that they had to be able to clean it in two days and open it up again after the floods.

PL: But this sort of grand scale innovation works alongside smaller, far less obvious examples.

CT: But innovation is not just these sorts of wonderful ideas and bringing a new product to market. That's really exciting but it’s how we move forward as an organisation on a day to day basis. One of the great benefits of having a company like Mott MacDonald is that it’s actually a very flat sort of structure so you can only go down to a divisional manager and then there's all these projects and so it’s really run by the projects and each project has to innovate itself and therefore there's a lot of small entrepreneurialism going on all the time in the company.

PL: So how do you embed that sort of low level, top end, smart thinking across an entire organisation? John McGurk...

JM: I'd put it down to two Cs, collaboration and capability and I think the two of them work really well together when you think about innovation. When you think about collaboration it’s all about having an organisational design and structure that allows people to collaborate, that identifies who the key and critical people are, make sure that teams aren’t just cliques or specialists, and that they bring in different insight, they bring in different perspectives. And it’s also about capability. It’s about saying, “Do we have the skills to do this and what skills do we need to build in the team?” It’s not always about bringing people in, it might be about actually, we could do with creating some facilitation skills so that we can have decent brainstorming sessions. It might well be about project management skills, so we can get ideas to development. It might well be about specific technical skills like computer programming and stuff like that. So it’s all about capability and collaboration.

PL: So capability and collaboration and perhaps a third C might be culture. But what sort of culture encourages innovative thinking from its employees? Well, Thomas Edison, the prolific American inventor, described success as serial failure. And of course failure and innovation have to go hand in hand. If you don’t try and risk failing, you cannot succeed.

JM: Quite a lot of organisations actually consider failure as failure pure and simple.

PL: Yes they don’t actually walk the walk with this, do they?

JM: Absolutely not.

PL: They say it’s great but in reality their people can't fail.

JM: That's right and the solution to that is it’s about making sure that the innovation- collaboration element is there so that there are more people involved in that but the capability issue is addressed. So if somebody fails on the basis that they never developed the product to market in enough time or there were critical skills missing in the team or somebody tried to improvise and wing it and they came up with the wrong prototype, and we're not just talking about products which it’s very easy to get into, but it might be about systems and structures.

PL: Ways of doing things, yeah.

JM: Yeah, serving customers, new ways of developing markets etc. and if managers feel that that's being shared across the organisation, then they’ll have more confidence in allowing people to play in that innovation environment.

PL: Of course it’s tricky for organisations to legitimise failure but it’s vital. Phillips Electronics, established back in 1891, invented items as ubiquitous as the cassette tape and the CD as well as a host of healthcare products and medical equipment. According to Callum Petrie. the HRD director, failure at Phillips isn’t a shameful word and it isn’t brushed under the carpet; it’s just treated as an inevitable step on the path to great innovation.

Callum Petrie: Well I think Phillips has always changed, has always innovated, so I don't think there's ever been a point when it hasn’t done that and that's probably why it’s still flourishing. But Phillips also celebrates the things that haven't gone so well. So it’s always introducing products and sometimes you have a winner and sometimes you have an average product and sometimes you pull a product, but what tends to happen is that a product that didn’t do so well gets remoulded, reshaped, bells and whistles are added and it turns out to be a success, maybe a couple of years later. So nothing’s ever lost, nothing’s ever wasted. So an idea is always used and we celebrate and laugh, you know, encourage a bit of humour about the post mortem when things don’t work out so well, so innovation is safe.

PL: Now that's a very interesting point, because we've been talking about this whole thing that it has to be okay to fail.

CP: Absolutely yeah.

PL: And that failure can turn into something useful in the future. Do you systematise that?

CP: Not really. I think what we do, for example, next week our chief executive is sending out some emails, it’s like, “Mind your language Timothy,” so if I have an idea and I come up to you with the idea and you say, “No, because...” it takes the wind out of this person’s sails, but if you say, “Yes, if…” you have a different discussion. And I think when you have a lot of keen, often younger people with these ideas the worst thing you can do is suppress them because there are so many exciting companies out there now, start ups and stuff, who will just gobble those ideas up. So the key is to make sure everyone’s got a safe platform, liberate them, encourage managers to celebrate success and also to post mortem the things that work out well as well as the things that don’t work out so well and therefore generally talk about failure. You've had a go, you've proven that you've got good ideas and one day you'll hit the jackpot. And it’s always being positive and forward thinking.

PL: Learning from failure isn’t always easy. No one really likes to dwell on the stuff that went wrong but all the evidence tells us we have to be brave and do it. The most innovative companies do just that.

JM: There was a new book out by Jonah Lehrer, the neuroscientist, which talks about how companies like Proctor and Gamble invented the floor mop through just basically saying, “We’ve been trying to do something different with the mop and it’s not worked, let’s get people in with a different view.” And they got some psychologists in to look at how people mopped floors and they eventually come up with the idea of that particular product because they were open to it, and they were also open to the idea that they had failed because quite often technical experts will worry away at a problem continually until they solve it and sometimes that's not the way forward, so it’s sometimes about saying, “Right we've tried that avenue, let’s look at a different perspective.

PL: Phillips creates new products with what sounds like a vibrant culture of trying, failing, trying again and they do that very fast. Not a single one of their healthcare products now available was around five years ago but there is more to their innovative culture than just new products. They’ve tried to encourage this sort of thinking amongst very different sectors of their workforce.

CP: We do a lot of training for our staff and we use the insights colour wheel so it tells you whether you’re a fiery red or a sunshine yellow. So what we thought we would do with our customers is do it with the people who buy our products, so the nurses, the doctors, that use the products, the buyers in the hospitals, for example. Or if we're selling it to the high street retailers like Comet, Curry’s, Homebase, people like that, do exercises with them because they may be a cool blue, they're interested in the price, the margin, when the delivery date will be.

Our sales guys are much more into selling, you know, over the top salesmanship and stuff and that can grate, so we do a teamwork session together and then suddenly they forget they’re for Phillips and they forget they're part of Homebase, whoever the customer is, and you have a great discussion and a great understanding and you get to know each other. So the reds are in the room over there, the yellows over there, the greens over there and the blues over here, not Homebase, not Phillips or whoever the customer may be, and that really knits the buyer and the supplier arrangement perfectly and we break down the boundaries.

PL: We often think of innovation as an elusive spark that can't be captured by systems or process but, as Callum says, taking action such as holding events encourages fresh thinking. So perhaps the biggest lesson of all is that innovation is something you can establish, encourage, nurture and sustain. In fact it takes organisation and planning to make an organisation truly innovative.

JM: Apologies for my chronic alliteration here but I tend to differentiate between people who see innovation as alchemy and people who see it as algorithm.

The issue is that you do have to have process around innovation and HR people. We're sometimes quite nervous about using the term process because we often associate it with bureaucracy and box ticking, but you really need process and structure around innovation because you have to think about the idea, the insight, the product development pipeline, the angle where you promote this within the organisation to the point where you get a profitable product that's basically useable or a profitable intervention, an intervention that improves process and that's really what it’s about. It’s about saying that it’s got to have process but it’s also got to have all of those other elements in it as well.

PL: Groupon is the fastest growing internet company in history. It reached sales of $1bn in its first 17 months. Clearly it’s an organisation built on innovation but how can it retain that spirit when it’s growing so startlingly fast?

Hailey Wojcik: We went from essentially two people at the end of 2009 to 800 plus by 2012 and in order to do that we needed to be innovative, not only in our product side, so what we're doing for merchants and our customers, but also on the people side of things and when I say that it’s because half of our company really is in start up mode, these people joined us to be entrepreneurial, to be cowboy, because that side of it appealed to them, but then, as we've continued to grow and our landscape of people has changed, we had to introduce into the organisation people who were looking for a stable, long term career, looking to come into an established organisation. So balancing the expectations of the start up crowd with the established crowd has been a challenge that is welcome because we really do need to bring together both sides of the coin to find solutions that work for our company. So innovation plays a huge role in almost everything that we do.

PL: And I think I can imagine what innovation must have looked like at the start, a bunch of guys and gals sitting around a table talking about stuff but what does it look like now when there's 800 plus people? How do you sustain that spirit across a disparate bunch of people because as you say they’re not all these kind of entrepreneurial “get out there and grab it” guys now? You've got a range of people, so how do you establish a culture of innovation that works for all of them?

HW: You know, at the beginning, we didn’t take that time to just sit there, talk ideas back and forth, decide on the best one and go do it. It was like, “I've got an idea, I'm going to run with it,” and I think that concept has really reverberated through everything that we do, you know, it’s not a big consultation, it’s not “hey what do Mike and Fred think about this? Tie in Bill and Tim”. You know it was really, “I've got a great idea, you guys agree? Okay let’s go.” Now of course we do have to slow that down a little bit as we…

PL: Well yeah.

HW: ...became 800 people because you can’t have 800 people being, 'woo-hooo'.

PL: Absolutely.

HW: But what we do try to do is take a consultative approach. So if we have an idea that we are looking to roll out on a large scale to the entire organisation, taking even sample groups from all across the business, yes, managers but staff from all areas with different needs, we bring them together and say, “here’s what we propose to do,” we would develop a training programme and then we always do the test run. The test run for us is super important. That gives us feedback: what works, what doesn’t work and the model that we use is keep, improve and bin. So basically what should we keep, what should we improve and what should we cut right out of it. And using that and taking in the feedback is really how we are able to continue to innovate because we're taking the basic ideas that are there but then incorporating in the feedback from our organisation and when you’re involving people in the change, regardless if it’s big or small, once you have the buy-in from them pushing through that innovation and encouraging them to continue to give their ideas and continue to be creative, it’s much easier because we've already set the pace as to this is what they’re able to do within the company.

PL: Size is a notorious hindrance to innovation simply because it’s traditionally been difficult to set up real collaboration across a big geographical area or indeed a huge workforce. At Phillips they address this with a strategy of open communication. They hold a range of events such as their town meetings where new ideas are voiced, the chief exec is there to answer questions and company news is shared frankly and honestly.

CP: Everyone comes along and it’s very minimalism, PowerPoint. Some product is brought along, people can touch and feel it, think of themselves as consumers, what do you think about it? Get employees involved in testing because we're obviously a product and a solution business, employees will stand up and have free access to the Chief Exec and say, “Peter what are we doing on this? What are we doing on that?”

PL: And do they do that?

CP: Yeah they do and the way at Phillips is we try and be humble in the way we talk. We don’t talk down to them, we talk about issues that are affecting us, the business, and we've had a rough ride over the last 15 months, the world economic crisis, the last thing people want to do is to spend on big tick items like MRI scanners or fancy audio equipment so we've had to...

LP: Be transparent.

CP: transparent and explain this is what we're doing and if you've got any ideas on how you can help us, let us know what they are and engage with your people and talk to them about the business they work in, in real words, in real time and it pays dividends.

PL: And in your experience that builds trust and that builds innovation, the braveness...

CP: Yeah.

PL: an effect.

CP: Well you connect and you trust; people you trust you connect with. So if you say something and we've had some conversations before, “Well we might scare them,” so what then happens is they find out in the Financial Times about the results, not from us, and that's not great. We treat them like adults and we get a lot back from it and I think the fact that Phillips has continually innovated and continues to be innovative and continues to bring out meaningful products with people, because people trust the brand and the people are the company.

PL: Navigating this sort of pioneering spirit through a recession takes some skill. Our instincts tell us that innovation is too risky when we haven't got much slack to deal with failure but looking at it another way, mightn’t lean times actually encourage innovation? As the old adage goes, necessity is the mother of invention?

CT: I think the recession has helped us and we're doing okay in the recession. We're not doing great but actually we're not doing too badly considering a lot of our customers were local authorities who’ve stopped spending and that made people start to look at where else can we collaborate? Who else can we work on? So you've got the education side for instance; we build schools and then maybe we help the teachers in the schools and we collaborate in that kind of way. Our education part of the business has started to work with local authorities in how they can reduce their costs because they are educators and they’re in the right business and therefore we're more favoured than the KPMGs or the Accentures because they’ve not been in that business.

JM: One of the key issues is that organisations can do it on a shoestring, you know, you can promote innovation on the basis of just licensing creativity and the development of ideas and look at what comes out of that particular process, or you can do things that are very low cost but high impact. For example, Dumfries and Galloway NHS, a very small NHS trust, that means it’s a massive organisation because it employs about 5,000 people in a massive geographical area. They created a programme called DDI, Delivering Dynamic Improvement, and they got doctors together with cleaners, radiographersand nurses etc. and they got them involved in talking about ideas. What they found was lots of people had ideas so they created, now this has become almost ubiquitous, but they created a kind of Dragon’s Den environment where the executives and the heads of service actually judged the ideas and awarded them, tested them to destruction, talked about, you know, we're going to ask you real serious questions about why you should get this seed corn funding. So organisations can use all of those techniques internally and quite often do.

PL: It could be that innovation is our ticket out of recession. According to John McGurk this is something the government, not just organisations, should consider.

JM: Most UK governments are focused on product innovation to the exclusion of the innovation in strategy and structure and in process that's absolutely critical to how we deliver innovation. The thing is a mature economy, like the UK, that doesn’t innovate will go into relative economic decline. If we do innovate and we take advantage of the new waves of technology, the new waves of service delivery, product improvement, customer service engagement, then we’ll have a place in the world but we're going to have to devote some resource to doing that and that's key, and part of that is obviously about providing the capability to do that. So it’s about what people often call training but we call learning. It’s about making sure that organisations collaborate so that's about organisational design and development and it’s about challenging organisations to consistently and continually innovate.

PL: Next month we’ll be discussing the topic of the moment, the government’s plans on executive pay and what they might mean in practice, with Caroline Norman from the Department For Business, Innovation And Skills, Katharine Turner from Towers Watson and Richard Higginson from Towry. Join me then.